Form W-2 and Retirement Payments Directly to a Pastor

Question:

Payments for a retirement account - the payments are part of a salary package and are made directly to our pastor. Are these listed on the W-2 and, if so, are they listed in Box 12 Code E or in Box 1 as salary?

Answer:

Generally, any payments directly to the pastor are considered taxable income included with his standard compensation in Box 1. Frequently, a church will provide in its budget for its pastor's retirement. The money is paid directly to him and he is responsible to follow up with an IRA contribution or other retirement savings plan. If he contributes the funds to a Traditional IRA account, then he can take a write-off on his personal return. Even if the church sends the contribution directly to the pastor's Traditional IRA investment account, the Form W-2 reporting is unaffected. Box 12, Code E is exclusively reserved for 403(b) (also called TSA) plan contributions. The amount withheld from the pastor's pay and contributed to his 403(b) is reported in Box 12 and does reduce the amount reported in Box 1.

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MinistryCPA - Corey A. Pfaffe, CPA, LLC

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